VW faces US$600m bill over recall

Car company replacing gearboxes in almost 400,000 cars in the firm's biggest market

Volkswagen recalled almost 400,000 vehicles on the mainland to replace defective gearboxes that may result in loss of power, in a move that may cost Europe's largest carmaker more than US$600 million.

The recall, conducted by Volkswagen and its joint ventures, include the Golf, Magotan, Sagitar and Audi A3, the mainland's quality inspector said on its website. While Volkswagen was unable to immediately comment on the costs, research firm LMC Automotive estimates replacements will cost between 3,000 yuan (HK$3,700) to 10,000 yuan per vehicle.

The move is a blow for Volkswagen, which counts the mainland as its biggest market, as the company sets out to become the world's largest carmaker by 2018. The recall comes less than a week after state broadcaster China Central Television featured Volkswagen customers complaining about abnormal vibrations, loss of power and sudden acceleration in cars equipped with the company's proprietary gearbox technology.

"It's always reputationally damaging to have to deal with an issue that plays out in the public's eyes," said Bill Russo, president of car consultancy Synergistics. "Will they take a hit? Of course. The issue is how can they recover from that and how quickly can they recover."

The company is recalling 384,181 vehicles, bearing the cost for replacing defective direct-shift gearboxes and upgrading the software to eliminate security risks, the General Administration of Quality Supervision, Inspection and Quarantine said on its website. LMC estimates Volkswagen sold about 680,000 vehicles equipped with the potentially faulty gearboxes.

The recall covers 21 types of vehicles, including versions of Volkswagen's Scirocco, Bora, Touran, Octavia and the Passat, produced as far back as 2008 and as recently as this month, according to the statement.

For Volkswagen, which sold four of the mainland's top 10 selling cars last year, complaints about its gearbox system in the country are not new. In May, the carmaker agreed to extend the warranty for the transmission technology to 10 years, compared with the standard warranty of two years, to address consumer concerns. The quality inspector said it began investigating complaints related to faulty Volkswagen gearboxes in March 2012. Two months later, the company extended its warranty for the transmission system after several rounds of talks with the regulator.